Ruling on Denbury
Resources pipeline could have extensive reach
Fort Worth Star
Telegram Aug 30, 2011 By Jack Z. Smith
A Texas Supreme Court
ruling against Plano-based oil producer Denbury
Resources, questioning its exercise of eminent domain in constructing an $850
million pipeline, could potentially affect construction of other proposed
pipelines, observers say.
Texas' highest civil court ruled Friday that Denbury had not properly established that it was a
"common carrier" offering its pipeline for "public use" and
therefore had no right to exercise eminent domain to run across a swath of
farmland in Jefferson County in southeast Texas. The court sided with Texas Rice
Land Partners, which owns
the property, and tenant farmer Mike Latta.
The Supreme
Court reversed a decision by the 9th Court of Appeals in Beaumont
and remanded the legal fight back to a state district court in Jefferson County that had ruled in favor of Denbury. The lower court now must determine whether the Denbury pipeline provides a legitimate "public
use."
The
pipeline, which was completed in December, carries carbon dioxide produced by Denbury from underground deposits near Jackson,
Miss., and transported through Louisiana to the Hastings
oil field in southeast Texas,
where it is injected to enhance petroleum recovery.
Pipeline
companies in Texas
have the power of eminent domain. But before they can exercise that power, the Texas Railroad
Commission must grant them "common carrier" status.
The Supreme
Court said Denbury received the status merely by
placing an "x" in a box on a commission form, indicating that the
pipeline would be operated as a common carrier. As such, it would provide a
public benefit and public use by transporting needed products owned by others,
such as oil, natural gas or carbon dioxide, in exchange for a fee.
The court
said, however, that a pipeline operator is not a common carrier if it
transports a gas "only for its own consumption" and that
"portions of Denbury's own website ... suggest
the pipeline would be exclusively for private use."
The court
said that Denbury's construction of the pipeline
"leads to a result that we cannot believe the Legislature intended, namely
a gaming of the permitting process to allow a private carrier to wield the
power of eminent domain." The Texas
Constitution does not allow the taking of property for private use, the court
noted.
John
McFarland, an Austin attorney, said Tuesday that he thinks the ruling will have
broad implications by giving lawyers an opportunity, "at least in some
circumstances," to challenge pipeline operators claiming to be common
carriers serving a public purpose.
McFarland
said he posted information about the Supreme Court ruling on a blog for oil and gas lawyers because he believes that it
has potential beyond the Denbury case.
Denbury President Tracy Evans agreed that the Supreme
Court ruling could potentially be applicable to other cases involving pipeline
construction and eminent-domain issues.
"I
think it would actually be applicable for water or sewer [lines] or anything
else," he said in a telephone interview.
Evans said
the company plans to ask the Supreme Court to grant a motion for rehearing on
the issue. But he acknowledged that it appears the case will "continue at
the district court level."
Evans said
the 24-inch pipeline, which is about three to four feet underground, runs under
1.8 miles of the Texas
Rice Land
Partners property, which still has a rice farm. Typically, a pipeline has a
right-of-way easement about 50 feet in diameter, Evans said.
Jack Z. Smith, 817-390-7724
http://www.star-telegram.com/2011/08/30/3324738/ruling-on-denbury-resources-pipeline.html